Monro Inc (MNRO) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Monro Muffler Brake second quarter earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to introduce Ms Melissa Myron of Financial Dynamics, please go ahead.

Hello, everyone and thank you for joining us. I would just like to remind you that on this morning's call management may reiterate forward-looking statements made in today's release. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, I would like to call your attention to the risks and uncertainties related to these statements which are more fully described in the press release and the Company's filings with the Securities and Exchange Commission. These risks and uncertainties include but are not necessarily limited to uncertainties effecting retail generally, such as consumer confidence and demand for auto repair, risk relating to leverage and debt service including sensitivity to fluctuations in interest rates, dependence on and competition within the primary markets in which the Company stores are located, and the need for and cost associated with store renovations and other capital expenditures. The Company undertakes no obligation to release publically any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date here of or to reflect the occurrence of unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events or circumstances described in such statement are material.

Joining us for this morning's call from management are Rob Gross, President and Chief Executive Officer and Cathy D'Amico, Chief Financial Officer. With these formalities out of the way, I would now like to turn the call over to Rob Gross. Rob, please go ahead.

Thanks, Melissa. Good morning and thank you all for joining us on today's call. I will begin with a brief overview of the quarter providing update on the ProCare acquisition and other strategic initiatives and review our outlook for fiscal '07. I will then turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional details on the financial results. During the second quarter our sales increased 12.2% to a record $107.3 million and our comparable store sales increased 1.1%. Our comparable store sales were driven by tires, up 9%, and service, up 4%, and partial offset by negative comparisons and some of the higher ticket major maintenance services such as exhaust and shocks.

Regardless of the economic environment, people need to have their state inspections, get their oil changed and perform the regular maintenance that will help them avoid major repairs down the road. As such, maintenance services are truly our bread and butter and the fact that this category continues to consistently generate solid positive comps is encouraging and indicates we continue to grow our customer base. We believe we have built a reputation as a trusted service provider and believe the same customers that are coming to us now for service will also choose us when it is time for the bigger ticket repairs. We are also doing a great job in the tire category. And as we gain more knowledge and experience in this area, we believe it will continue to grow for us. In fact, we are launching a new initiative in the tire category which I will discuss in a few moments.

I think it is also important to highlight that we outperformed the industry in these two key categories, thereby increasing our market share in these traffic driving businesses and positioning us well to capitalize as the macroenvironment improves. As the quarter progressed gas prices declined and the overall external environment improved. Our customers began to return to more normalized spending patterns during the last month of the quarter and looked to Monro to provide many of the major maintenance services that had been deferred. In Q2 our comparable store sales showed sequential improvement each month and we ended the quarter with a 5% increase in September. While our comparable store sales for our larger ticket categories were down for the quarter, we saw them come back in September and they contributed to the 5% increase for the month. For example, in September, brakes were up 4%, shocks increased 3% and alignments were up 9%. September also benefited from the 3% overall price increase implemented at the beginning of the month of which approximately 2% held.

As we discussed last quarter, we continued to test several different promotional and advertising strategies in some of our markets in order to drive traffic. What we have found works the best is an expansion of our existing direct mail campaign. Our findings show our core promotional strategy was on track and we further refined our industry leading direct mail promotions. Bottom line is direct mail with our systems advantage and ability to scrub the data is more efficient than electronic or ROP advertising. We will continue to test for the ideal mix as we move forward. In Q2 our operating margin was 11.2% compared to 13.6% last year. Vendor prices for oil and tires continue to increase while we maintained our low price point for oil changes in order to drive traffic, contributing to the margin pressure. We expect this trend to continue in Q3, but hope to get relief in the fourth quarter if recent trends continue on their current path. The inclusion of the lower margin ProCare business and corresponding advertising expenditures also weighed on our margin in the quarter. As the former ProCare stores improve, our operating margins will return to their historical levels.

During the year, we have made much progress towards strengthening our organization and building a platform for future growth. First, let me give you an update on the 75 ProCare locations we acquired at the end of April. We remain pleased with our progress on the integration front and the $0.02 dilution was in line with our expectations. Our first focus for ProCare was to get their expense structure and overall business model aligned with Monro's. We have implemented the majority of these changes and the new signage is in place. When we took the stores over, their accounts were running down approximately 30%. They ran down our projected 20% in Q2 and are down only 10% thus far in October. We even had our first three days of positive comps in October. The sequential improvement in total sales each month is another positive indicator of ProCare. Even though we are entering the seasonably slower months, the sales run rate at the ProCare stores is holding steady at approximately $780,000 a week.

As I discussed last quarter, we did not want to undertake any specific initiatives on the sales side of the equation, because we did not want to expend the time or ad dollars to promote the new locations until we had the proper operating model and people in place. That said, we are planning to launch Grand re-Opening events in November and expect these sales driving efforts to result in continued improvement in ProCare's results. We are currently targeting minus 10 comps in Q3 for the ProCare stores, hopefully better. Turning to our existing store base, we have recently developed a new initiative designed to increase sales in our service stores, which we are starting to test at the beginning of October in 30 locations in the Syracuse and Rochester markets. Our aim is to better leverage the success we have achieved and the knowledge we have gained in our tire stores. Specifically, we are testing changes in our service store model that will increase the mix of tire sales in these locations.

Right now tires represent approximately 9% of sales in our typical service store. We believe that we can double that percentage by using what we have learned about marketing and selling tires in our tire stores without losing any service business. We feel this is low hanging fruit for us and a great way to leverage best practices across our business. The plan is simple. We pull some exhaust inventory out of stores to make room for more name brand tire lines. We then change the focus of our advertising to feature tires more prominently in these markets. We are not significantly changing or increasing the cost of advertising just the focus. We believe that the additional selection and the increased store focus on tires will maximize sales with our existing loyal customers by providing added convenience to them, as well as attract new customers by offering good price points on very popular tires.

It is important to note that we are not significantly increasing inventory at the store level in total dollars. This is a low capital and expense investment project with significant opportunity to increase sales. At this point, it is too early to have any definitive feedback to provide. As I mentioned, we began this test in early October so we could be prepared for November, which is a important tire month. However, we wanted to keep you apprised of our efforts to continually drive sales growth. While we are still very early in the testing phase and it is too soon to determine if a broader rollout will occur, we view this as a good opportunity based on the comps we have generated in the tire category recently.

We also continue to pursue our stated acquisition strategy. We believe the recent challenging environment will provide opportunities for us and we are actively pursuing several options which are at various stages of negotiations, given that our planned purchase of Strauss did not materialize. As we announced in August, we did not exercise our option to purchase the 87% of Strauss we did not own. Strauss's financial condition and operating performance deteriorated making the terms of our initial agreement no longer a viable option for us. While we made every attempt to renegotiate the terms of the option agreement lower, we were unable to do so. Strauss currently plans to reorganize under bankruptcy protection and they believe they will be successful in doing so. That said, if that doesn't turn out to be the case, we are prepared to be involved in the process of purchasing selected assets if the opportunity presents itself.

Finally, as we continue to grow, it is very important to ensure that we have the right people to guide us forward and execute the many initiatives we have underway. We further solidified our leadership team with the promotions of John Van Heel and Joe Tomarchio to Executive Vice President. As Chief Administrative Officer, John will now oversee all support functions other than finance, human resources, risk management, legal and IT, which will continue to report to Cathy D'Amico. John will also continue to -- will also continue his active role in our acquisition growth strategy. As EVP of Store Operations, Joe will now lead the operations for both our service and tire stores. I am very confident that John and Joe's leadership and experience will help us move Monro forward and allow us to continue to achieve our goals.

Now, I would like to turn to our outlook for the remainder of the year. For the full year we are tightening our range for earnings per diluted share to $1.68 to $1.72 excluding the $0.11 impact of the onetime impairment charge recorded in Q2. This compares to $1.51 earned in fiscal 2006. This range assumes comparable store sales of 2 to 3% for the full year. On a quarterly basis we expect the second half significantly higher than the year ago period due to the timing impact of our new oil supply contract, which will increase our cooperative advertising funds, the contribution from the ProCare integration, the expected timing of consumer purchasing patterns and the extra week in Q4. For the third quarter, October comparable store sales are currently running up approximately 2%. And we are expecting comps for the full quarter to be up between 1 and 3% compared to a 4.7% increase last year. We currently anticipate earnings per share to be between $0.31 and $0.34 versus $0.27 last year.

As we look ahead, we are confident of the position we have established for Monro Muffler Brake in the marketplace and are optimistic about the long-term effectiveness of our operating model and our future growth prospects. We remain committed to growing our business and increasing profitability over the long run. We look forward to a solid fiscal 2007. Further, given our opportunities with ProCare and the solid acquisition environment, we are even more optimistic about our opportunities in 2008 and beyond. This completes my overview. And now I would like to turn the call over to Cathy for a more detailed review of our financial results. Cath.

Thanks, Rob. Good morning, everybody. Sales for the quarter increased 12.2%. As Rob said, comparable store sales increased 1.1% and new stores, which we define as stores that opened after March 26, 2005, added $12.2 million. That includes 9.9 million from the acquired ProCare stores. There was a decrease in sales from closed stores of $1.6 million offsetting the increases. And that compares to a comparable store sales increase of 9/10 of 1% in the second quarter of fiscal 2006. And there are 76 selling days in both the quarters, September 2006 and September 2005. Year-to-date comp store sales decreased 9/10 of 1%. New stores added $19.5 million, including $15.4 million from the acquired ProCare stores. This was offset by a decrease in sales from closed stores of $3.1 million. And year-to-date that compares to a comparable store sales increase of 1.3% for the first six months of last year. Gross profit for the quarter ended September 2006 was $44.1 million or 41.1% of sales as compared to $39.7 million or 41.6% of sales for the prior year quarter. The new ProCare stores negatively impacted gross profit by 1.1%. This occurred primarily in the areas of labor and occupancy costs. Due to negative comparable store sales in the ProCare stores, fixed occupancy costs created pressure on gross margin.

Additionally, even in times of declining sales technicians must receive a minimum base wage, although they are not fully productive. The subsidy of wages in the ProCare stores raised labor costs as a percent of consolidated sales. We view this as a short-term problem since the sales improve in these ProCare stores as they have continued to do since we purchased them. Gross margin will improve as well. Without ProCare gross profit was 42.2% of sales for the quarter ended September 2006 as compared to 41.6% in the prior year. There was a shift in mix during the quarter ended September 2006 to the lower margin tire and maintenance service category, as well as tire and oil cost increases. However, these increases were offset by vendor rebates recorded as a reduction of cost of sales as compared to the prior year quarter. Excluding ProCare, labor and occupancy costs declined as a percent of sales during the quarter ended September 2006 as compared to the prior year. Positive comparable store sales improved labor efficiency and created leverage against fixed occupancy costs.

Gross profit for the six months ended September 2006 was $85.1 million or 41.4% of sales as compared to $80.4 million or 42.3% of sales for the six months ended September 2005. Without the ProCare stores gross profit was flat with the prior year at 42.3%. Operating, selling, general and administrative expenses for the quarter ended September 2006 increased by $5.3 million to 32.1 million from the previous year quarter and were 29.9% of sales as compared to 28% in the prior year quarter. Store direct costs are a component of SG&A and costs associated with the ProCare stores increased store direct costs on a consolidated basis by 6/10 of 1% of sales. In addition to the percentage increase attributable to the ProCare stores, approximately one percentage point of the increase in SG&A expense as a percent of sales is due primarily to a shift in cooperative advertising credit from SG&A to cost of sales in connection with the accounting for new vendor agreements under EITF 0216. Additionally, advertising costs as a percentage of sales increased as compared to the prior year quarter.

For the six months ended September 2006, SG&A expenses increased by $8 million to $61.7 million from the comparable period of the prior year and were 30% of sales compared to 28.2%. Operating income for the quarter ended September 2006, of approximately $12 million, decreased 7.5% as compared to operating income for the prior year quarter and decreased as a percentage of sales from 13.6 to 11.2 for the same period. Net interest expense for the quarter ended September 2006 increased by approximately $0.1 million as compared to the same period in the prior year and remains flat as a percentage of sales for the same period. There was an increase in the weighted average interest rate for the current year quarter of approximately 115 basis points as compared to the prior year, due to increases in prime and libor interest rates as well as some new capital leases that carry higher rates than the Company's bank facility. Partially offsetting this was a decrease in the weighted average debt outstanding for the quarter ended September 2006 of approximately $2.3 million and an increase in interest income of approximately $100,000.

Other expense increased $2.3 million as compared to the prior year, primarily related to the write-off of the Company's investment in Strauss of $2.7 million, partially offset by a reduction in other closed store reserves of $0.4 million. The effective tax rate for the quarter ended September 2006 and September 2005 was 37.5 and 38% respectively of pretax income. Net income for the quarter ended September 2006 of $5.6 million decreased 26.5% as compared to the prior year quarter. Earnings per share on a fully diluted basis decreased 27.5%. Excluding the one time impairment charge related to Strauss, net income decreased 3.4%. Our balance sheet remains very strong. Our current ratio at 1.6 to 1 is comparable to year-end and a year ago September. Inventory is up 2.2 million from March 2006 due primarily to the addition of the ProCare stores and to a lesser extent to the other new store openings and our continued efforts to improve stocking levels and mix of inventory to reduce outside purchases. However, turns were slightly improved from year-end and last year September.

For the first six months of this fiscal year we generated approximately $24.4 million of cash from operations and received $2.3 million from the exercise of stock options. We spent approximately $13 million to purchase ProCare this year. And total CapEx so far this year is approximately $12.5 million, including $4.3 million from the acquired ProCare stores. In spite of the purchase of ProCare we've managed to pay down $4 million of debt and we paid $1.7 million of dividends. Depreciation and amortization totalled approximately $9 million. As a reminder, our debt to capital ratio is 17%, a decline even from the prior quarter which was the lowest in our history. We have $95 million of availability under our credit line and plenty of room under debt covenants, making it very easy for us to do acquisition. That concludes my formal remarks on the financial statement. With that I will turn the call over to the operator for questions.

[OPERATOR INSTRUCTIONS] Your first question is from Scott Stember of Sidoti and Company.

Can you maybe give what the actual decline in the quarter was for exhaust and the few categories that you didn't mention?

Sure. Exhaust was down 12.2. Shocks were down four. Brakes were down two. Alignments were up three. Service we said was up four and tires were up nine.

As far as October goes, it sounds like some of the strength has carried over. Could you just give us a framework of what we are going up against in the month of October as well as the quarter?

Sure. Certainly for the quarter we are up against the 4.7 comp. If you remember September last year was very weak. We came back with a plus 68, plus 69 in November, and a lot of that was driven by tire sales. So while we feel that is a tough comp number to go up against with the mix of our business continuing to move into tires, we are not that concerned going up against that comp number. For October I believe we are up against a 1.9% comp increase last year and as we said through the weekend we are up approximately 2% on that 1.9% increase last year.

Okay. And with the oil prices falling the way that they have, could you talk about the possible benefits that you could see going the other way similar to the negative impact that you had with your vendor?

Sure, our relationship and I think everyone's relationship with vendors is on the way up, they are very quick to put through price increases. We received a price increase in the beginning of September on oil. We will expect to see those price increases go the other way, albeit, not in this quarter. We would expect whether it is December, January, February, if things stay where they are, certainly we would get some help on the cost side with those things going the other way. But typically the increases come through immediately, the decreases come through three months later than they should.

Two last questions. Cathy, I missed the CapEx number.

Sure. It was $12.5 million. And that included $4 million for the ProCare stores.

The upgrades in the ProCare stores?

Yes, mostly equipment and signage.

Lastly Rob, could you just make some general comments on what you have seen, beyond what you have said already, with ProCare, things you are happy with or things that you guys can improve upon, obviously, moving into the back half of the year?

Yes. Certainly I think we are happy with what we see in the acquisition environment. I think we are happy with ProCare's performance. I think we are happy we are not running negative numbers any more. I think we are very dissatisfied with the first six months of the year.

Fair enough. Thanks, guys.

Your next question is from Tony Cristello of BB&T Capital Markets.

Good morning, Rob, Kathy. Couple questions. One, I was wondering there has been some tough weather up in the northeast, some snow storms. I was wondering if - I know you hate to talk about weather because you get the benefits or you get impacted, but have there been any impact to your business in October?

Certainly with two feet of snow in Buffalo in October and us reporting a plus two comp for three weeks of the month, I mean, yes, we were doing better before the snowstorms. That being said, as you said, it is going to be insignificant on the quarter, insignificant on the year. We had like 30 stores closed for a couple of days. Not all of them are open yet. But we will look a lot smarter next October.

Well, that's right. It speaks to just the strength in business. When you talk about the tire initiative and what you are seeing with shifting from 9% to maybe 18% over time, do your customers right now view the service stores as a destination for tires, and is that in part what you are trying to at least capture in terms of some of the shift over mix?

Absolutely correct. Right now they do not view us as a destination for tires. Our tire sales are primarily with Bridgestone, who has done a very good job for us and continues to do a good job for us. But the 9% we are currently running is typically a function of us doing inspections of vehicles when they come in and pointing out the opportunity and the needs of the customer and them trusting us to do the work. At this juncture, we think there is an opportunity to become a destination location for us to sell tires. And that's where we see the opportunity, especially being really for the last three years we have outperformed the market in tire sales, have more attractive pricing in acquiring the tires. And certainly a better in stock position with more name brands going into these locations. Again, that being said, it is premature for what we hope and expect to occur to assume a rollout and start factoring in those numbers till we have a little bit more information than ten days.

And I think the bigger picture. though, if we look out, the effect of a shift such as this would be downward pressure on your actual gross margins. But it should be more than offset by greater revenue dollars over those fixed costs. So you, at the end of the day, should see opportunities for further EBIT improvement?

I think the objective of anything we do, hopefully, is to make more money. But certainly the more you sell of the lowest margin category you have, there will be gross margin pressure. But, we continue to pay our bills with gross margin dollars and we will be focused on making more money. And , yes, EBIT improvement.

Is there opportunity, also, for buying power? With 500 plus stores or 600 stores that are service and the balance being higher. If you were to increase that mix to service that's a big opportunity to increase the volume and I am assuming there should be opportunity then that would help you in your cost of goods?

Certainly when you put it on paper prior to starting this project, everything you are saying is true. And again, certainly next quarter, as with anything, we will give you a complete update on how the initiative is going. And what rollout plans, if any, we have based on the preliminary results. But we would certainly expect, as we said, this to create opportunities for us to both grow sales and grow profit, which includes obviously the top-line sales as well as being able to buy better.

One last question. Cathy, if you could just maybe remind us one more time on how we should look at the gross margin in SG&A dynamic as you get more and more moving those rebates out of G&A and up into your cost of sales line and when do you -- I think it is the fourth quarter that you will actually really get the majority of that benefit. But we should start to see something coming into this next quarter?

Actually, this quarter that we are in was about 1% shift between SG&A and cost of sales. It will increase a little bit more this year as the Valvoline contract takes full effect. But we do still have agreements that were signed in our Evergreen. Some of our larger agreements for exhaust and shocks are still under the old rules, so there will still be cooperative adver -- a piece of cooperative advertising income in SG&A for quite awhile, until we redo those agreements. But, yes, you will see a little bit more moving from SG&A to cost of sales over the next couple of quarters.

It would help you more in you season's stronger quarters.

Yes, because of the turns and oil turns pretty fast.

Okay. Thank you.

Thanks, Tony.

Thank you. Your next question is from John Lawrence of Morgan Keegan.

Hi, John.

Rob, not to beat this to death on the tire initiative. But, as far as getting the stores ready to do that, et cetera, I assume even at 9% doubling that, we are still talking about a run rate somewhere in the neighborhood doubling that rate of what, five to six tires a day or less.

Currently it is less than five to six tires. In order to get to that level, if we are currently running about three to four tires a day. We would need to get to, obviously, eight tires a day to double that. Certainly we are not expecting that kind of impact in the coming months and it being only 30 stores and just starting it. It is probably something that certainly is inexpensive to rollout. As far as paying for all this effort, whether it's advertising, racking, inventory, it requires one more tire a day per store to breakeven. So our goals are obviously to get up to eight tires per day with this initiative. But the downside is minimal at best and and I think it's certainly somewhere in between there over the next six months. We should get a read but it is also something that is easy to do. We can do it quickly. We can refine it as we are testing it and we'd hope that it's a major opportunity for us. But again, right now we think it is a smart idea, we don't know it is.

Obviously it is not a lot of pressure on the bay schedule, et cetera, the car is probably already on the rack. Right?

Absolutely correct. Albeit, we would hope to drive more traffic having brand names and a selection in store. So increasing traffic through now, in addition to the discounted oil change, using attractive prices and selection in these service stores to drive additional traffic. In a perfect world, traffic goes up, sales go up and we make more money and we roll it out for 2008 because we are just so brilliant.

Obviously.

Not this quarter.

Secondly, Rob, just to go into ProCare a little deeper dive here. As the customers are coming back and you are seeing that, is the mix so that ticket average what you expect to see or as you look at the ticket what is there compared to what you expected?

I think certainly, we are slightly ahead of schedule with October running down 10% comp. As we said conservatively for this coming quarter we expected minus 10 for the whole quarter. We didn't expect the jump from minus 20 to minus 10 to come as quickly as it did. We are not complaining about it. I think the best indication of the way October is going and why we might be somewhat conservative on the ProCare numbers is we have had three positive comp days off of, again, five months ago running minus 30s. So things are happening very well there while we haven't invested in advertising or even relaunched the new brands. So we are encouraged on the sale side. We know what we are going to do on the expense side, as we do with any acquisition. We do the ticket average is holding there. The traffic is improving there and again, we have five months under our belt, but we would hope that what you would see in Q3 and Q4 from ProCare is no more dilution and hopefully a contribution to earnings.

And is that success pretty much across those markets or any one of those markets better than others?

I think they are all performing well across the board. There is basically five markets and three of them are in markets where we already do business, Columbus, Pittsburgh and Cleveland. Part of the hope of this relaunching, especially in those three markets, is we double the store count, but the additional advertising should benefit the Monro stores that are already established in those markets. And with 31 of the 75 stores being converted to the Mr. Tire brand and as you know tire stores typically run higher sales, we are hoping to continue to build momentum and I certainly think the risk of upside surprises with the ProCare chain is going to be better than any risk on the downside which typically is how we try and structure any deal we do.

I understand. Thank you, sir.

Thanks, John.

Thank you, your next question is from [Vic Kumar] from Sound Post Partners.

Actually, guys, my question was already asked. Thank you.

Thanks.

Thank you. [OPERATOR INSTRUCTIONS] Your next question is from Robert Straus of Merriman.

Just a couple of questions here. On the acquisitions that you are potentially looking at. Could you, Rob, give us a little bit of a feel for what kind of valuations you are seeing out there and to what degree those properties that are available have kind of come to you more recently.

Again, certainly with the weak market, Robert, there are similar to the best analogy would be the housing market. Right now housing sales are slow. There's tons of inventory because the sellers don't want to lower their price to what we would view as a current attractive valuation. If we were close enough to announce something, we would obviously announce it. So we are not at that point yet. But we are certainly looking at more than one or two properties that are for sale that we haven't gotten the deal done and unless the valuations improve, we will not get done. As far as -- you look at the last six deals we did. And things that you should expect from us that work well in our business model and make them accretive quickly are paying $0.60 to $0.70 on the dollar sales. $0.60 on the dollar replacement costs and any bigger type transactions would involve six times EBITDA. You could assume that none of the current deals we are negotiating have reached those points yet otherwise we would be announcing them.

On the tire initiative in the service stores, how long do you think that this test will take place? And I am sure it is early to tell at this point but are we thinking a couple more months or are we thinking six to nine months?

Well, I think the first step is let's get to one month. Certainly, we have done a number of things over the years that haven't worked at all and this might be one of them. That being said, I don't think we plan on taking these projects to incrementally improve our business model without thinking they are smart, without thinking we got the resources to get the job done. And we would hope to see results this quarter that would make us comfortable trying to roll it out in Q4 and be prepared for 2008.

Any additional comments that you might have regarding a potential continued uptick in the service business? Clearly October looks like it is doing a little bit better. If you can tie-in there any specific promotional activity that is going on from your perspective?

The new type of promotional activity will be focused on just doing the same things and doing them better. And the new stuff is going to relate to the tire initiative, which we call black gold because tires are like black and we think there is gold in them. That's where you will see the additional advertising come in, it only pertains to the Rochester and Syracuse market, and then the relaunch of the ProCare stores is in five markets. 75 stores on a base of 700 and we would hope to get a lift on that. Certainly, we think we do a very efficient job in advertising, which is about 4% of sales. We will hopefully drive our sales and keep that percentage there and continue to scrub our data and use our systems to get more efficient on the direct marketing area. But, in this category there is no magic bullet. There is no commercial. You can spend a lot of money and drive incremental sales. We have chosen to be as efficient as we can and get those sales and have as much of a drop to the bottom-line as we can. And I think you will see that in the future.

Are you seeing anything different on the competitive front in that landscape going on, whether it is oil or other types of services?

Not so much on the oil. Certainly some of our competitors have been focusing recently, spending money on TV on brake promotions. Certainly I think we get some spillover of that spend and that has helped our business. But I think it is just a different business model and a different strategy. I think we need to get more efficient in the marketing dollars we spend and historically in this category there is not a direct correlation to generating profitable sales by spending more money in advertising, at least in my eight years seeing what has gone on out there. Maybe someone will figure it out and prove me wrong. But don't see it now.

Thanks a lot. Good luck.

Thanks, Robert.

I would like to hand the floor back to management for any closing comments.

Great, thanks, Jackie. I just want to thank everybody for their continued support. Certainly we hope September is a prelude to what we are going to see in Q3 and Q4. Certainly the numbers should be better in Q3 and Q4 and we will work hard to continue to earn your trust as we do our customers. And improve upon the latest number 167 out of the top 200 best small companies, which while we are proud of it, there is still 166 of the companies better than us on the Forbes list and we will continue to move the Company forward. Thanks for your support and we are available for any additional questions you might have. So thanks and have a great day. Bye.

Thank you. This concludes today's Monro Muffler Brake conference call. You may now disconnect.